Morning Briefing: Fed moves unlikely to impact Aussie interest rates

Fed moves unlikely to impact Aussie interest rates
The first interest rate movement by the United States’ central bank, the Federal Reserve, in seven years is unlikely to impact the immediate future of interest rates in Australia.

The Fed yesterday opted to raise its Federal Funds target interest rate from a range of 0-0.25% to 0.25-0.5%.

While it is the first movement in the better part of decade, AMP Capital chief economist Shane Oliver said the decision was not one that came out of the blue.

“The move is hardly a surprise. The Fed has been talking about a rate hike ever since ending quantitative easing over a year ago,” Dr Oliver said.

“After being delayed in June and September, due to a combination of soft US data and financial market turmoil, the Fed has given ample warning recently of a December hike provided there were no unanticipated shocks,” he said.

Dr Oliver said the increase should be seen as positive, with it indicating the US economy is on its way to recovering to pre-GFC levels.  

“The reasons for the hike are simple. The extraordinary monetary easing since the GFC (zero interest rates and three rounds of quantitative easing) have done their job in seeing off the risk of a depression and returning US growth to reasonable levels. Jobs are now well up on pre GFC levels, unemployment is down to 5%, confidence is up, the housing sector has recovered and business is investing,” he said.

“At its core the Fed's move is positive as it signals that the US economy is strong enough to be further taken of the life support that has been in place since the global financial crisis.”
 

NSW almost debt free thanks to stamp duty
The strength of property market in New South Wales has helped the state government become almost debt free, as it benefits from increased stamp duty revenue.

According to a budget update released yesterday, NSW’s net debt level has shrunk to $1.8 billion, the lowest it has been in two decades.

The reduced debt levels are thanks in part to an additional $863 million which has been collected in stamp duty charges since June budget estimates.

According to the government, around $430 million of that came from stamp duty associated with the sale of electricity provider TransGrid, but a large proportion of the remainder came from property transfers.

“The windfall transfer duty we are expecting to receive in 2015-16 is primarily made up of stamp duty from the TransGrid transaction and commercial and industrial property transfers," NSW Treasurer Gladys Berejiklian said.

The government’s increased revenue announcement has again prompted the Property Council of Australia (PCA) to go on attack as it renews calls for the tax to be abolished.

“Stamp duty is our most damaging tax and hurts homebuyers, businesses and the economy," PCA NSW executive director Glenn Byres said.

“NSW continues to haul in record levels of stamp duty – which has doubled in the past four years from around $4 billion to well above $8 billion,” Byres said.